PJM region and California dominate US storage via different paths

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While much of the U.S. activity surrounding energy storage has been focused on California and the PJM region, the locus of activity is expected to expand as states like New York and Massachusetts implement ambitious storage goals.

A new report from the Energy Information Administration (EIA) that gives a snapshot of the energy storage landscape shows how differing policy drivers have led to the proliferation of large capacity and short duration storage projects in the PJM region while California leads in terms of MWh of capacity.

The report also notes that California’s policy mandates mean that energy storage deployments in the state tend to serve a wider array of applications than those in PJM. The output of many California storage projects is procured by regulated utilities to serve multiple applications without necessarily being directly compensated for each application through market mechanisms.

Continued growth

The market trends report notes that installed power capacity for battery storage has nearly doubled every two years since 2011, hitting 708 MW of power capacity and 867 MWh of energy capacity by the end of 2017.

EIA, an arm of the Department of Energy, expects that growth trend to continue. Project developers have reported to the agency that they expect to bring 239 MW of large-scale battery storage projects online in the U.S. between 2018 and 2021. The EIA notes that number could be just “an indicator of trends” because the short planning period needed for a battery storage project means even more projects could be proposed in that time frame.

In comparison, the U.S Energy Storage Monitor from GTM Research and the Energy Storage Association reported that 100 MWh of grid-connected energy storage were deployed in the fourth quarter of the year, making for a total of 1,080 MWh deployed between 2013 and 2017. That amount covers battery storage along with other forms of storage, such as pumped hydro.

This year, GTM expects the U.S. energy storage market will almost double with the installation of more than 1,000 MWh, which is in line with EIA's analysis. "If the industry keeps up the trends seen in previous years, we could see 1,000 MWh of deployment at the end of 2018," Cara Marcy, a renewable energy analyst at the EIA, told Utility Dive via email.

The EIA found that batteries' unique capability to supply and consume energy creates “an unusual combination of cost and revenue streams that make direct comparisons to other generation technologies challenging.” To quantify the competitiveness of a battery storage technology with other technologies, the authors found that the characteristics of individual markets and the particular revenue opportunities that exist must be taken into account.

Storage market standouts

The EIA report draws a very clear picture of where energy storage projects are being deployed and what kind of projects are being installed.

Nearly 40% of existing large-scale battery storage power capacity is within the footprint of the largest electricity market in the nation — the PJM Interconnection. In contrast, 18% of large-scale battery storage power capacity is in the footprint of the California ISO. However, CAISO accounts for 44% of existing storage energy capacity, which is seen by the amount of energy that can be stored or discharged as measured by MWH. PJM accounts for 31% of total storage energy capacity deployed. Together, these two markets account for 58% of storage power capacity and 75% of storage energy capacity.

These two markets also differ in how energy storage is being deployed. In PJM, most energy storage projects were installed by independent power producers who sell into the competitive wholesale power market. In CAISO, regulated utilities have procured significant amounts of energy-oriented storage capacity. In fact, 62% of the power capacity in California was procured by two investor-owned utilities — Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E).

Much of the difference between the CAISO and PJM markets can be explained in terms of policies. PJM created a new frequency regulation market product for fast-responding resources in 2012. That spurred a boom in energy storage projects that tended to be large in terms of power capacity (MW) but have shorter durations or lower energy capacities (MWh) — a profile well-suited for the frequency regulation market. Recent changes in PJM’s market rules, however, have slowed battery installations in the region.

California policy drivers

There are several drivers of energy storage in California, but the big boom in the state’s energy storage market came two years ago when the Public Utilities Commission approved plans to allow for the expedited purchase of battery energy storage to help prevent potential blackouts as a result of the disruption of fuel supplies stemming from the leaks at the Aliso Canyon gas storage fields.

That resulted in what, at the time, was the largest energy storage project in the world — the 30 MW, 120 MWh Escondido project by SDG&E and AES Energy Storage.

In order to fill in for peaking plants, the Aliso Canyon projects were designed to be able to inject energy into the market for longer periods. This prioritized projects with larger energy capacity profiles over a project designed to provide the quick shot of energy needed for frequency regulation.

Another policy driver in California was the energy storage mandate established by AB 2514, which requires the state's investor-owned utilities to install 1,325 MW of energy storage by 2024. That target was bolstered in May 2017 when the CPUC implemented AB 2868, which ordered the state’s three largest investor-owned utilities to procure an additional 500 MW of distributed energy storage.

California also encourages smaller-scale energy storage through its Self-Generation Incentive Program (SGIP), which requires 200 MW of customer-sited energy storage to be installed by 2024. SGIP has provided rebates to 49 MW of energy storage projects through the end of 2016, accounting for 83% of all small storage power capacity in the state.

The state’s policies have made California a power house, especially for smaller (less than 1 MW) energy storage projects. EIA reports that nearly 90% of the small storage power capacity in the U.S. was claimed by four California utilities: SCE, SDG&E, Pacific Gas and Electric and the Sacramento Municipal Utility District. In contrast, 88% of large battery storage power capacity was deployed to provide frequency regulation, much of that in the PJM market.

However, the diversity of its market is resulting in California taking a greater proportion of the overall market for large-scale battery storage from about 2016 onwards, EIA’s data shows.

With policies and incentives playing such an important role in the energy storage market, California’s storage ranking could shift in the coming years as New York and New Jersey implement mandated energy storage targets and Massachusetts implements its voluntary storage goal. In addition, regional transmission organizations and independent system operators will be responding to the Federal Energy Regulatory Commission’s Order 841, which directs them to adapt their market rules to accommodate energy storage.

Residential storage prospects

The one sector that has not taken off in energy storage is the residential market. According to the EIA data, U.S. utilities reported 66 MW of small-scale storage power capacity in operation in 2016. However, more than 60% of that capacity was installed in the commercial sector and 31% in the industrial sector.

The EIA report offered no explanation for the relatively small portion of residential installations among small-scale storage deployments, but noted the strength of some states in residential storage, especially Virginia, Hawaii, Ohio, Texas and Louisiana. EIA's Marcy didn't have any specifics on the residential deployment numbers in those states, but noted that the the totals are very tiny in comparison to California.

Historically, the growth of residential energy storage has been hampered by less-than-compelling economics. That is beginning to change as more states eliminate or modify net metering programs and implement new rate structures such as time-of-use rates. Those changes can make energy storage a more attractive option when paired with solar power. Consulting firm IHS Markit expects U.S. residential energy storage to quadruple between 2018 and 2022 from less than 200 MW to more than 850 MW.

The locational divergence between storage energy and power capacity also shows up in costs. The EIA report notes that battery systems with shorter durations will typically have lower normalized power capacity costs, in $/kW terms, than batteries with longer nameplate durations. The opposite is generally true when examining normalized energy capacity costs ($/kWh), as the total system costs for longer-duration systems are spread out over a larger basis of stored energy, the report found.

Correction: Updates to clarify that Massachusetts' storage target is aspirational, not a mandate.